Oil Prices Rebound Significantly After Inventory Data

Posted by Patrick O'Connor on 6/11/08 9:23 am

Oil prices shot up more than $6 per barrel after inventory data indicated that U.S. supplies fell by a whopping 4.56 million barrels for the week ending June 6.  Analysts were expecting a 1.5 million barrel decline.

“The drop came even as imports remained relatively unchanged and refinery demand for crude fell, indicating that the current pace of imports is simply too low to sustain a constant level of crude inventory,” said Chris Lafakis at Economy.com.

Additionally, data indicate that Chinese oil imports rocketed 25% last month.  China is stockpiling ahead of the Beijing Olympics.

Meanwhile, President Bush and German Chancellor Angela Merkel are threatening to apply additional sanctions against Iran if it does not stop enriching uranium.

How accurrate are the oil data?
Read post by Navellier Applied Research Analyst Tim Hope.

Read more blog posts on oil prices.

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Have Global Interest Rates Bottomed?

Posted by Patrick O'Connor on 6/10/08 1:41 pm

Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson have been taking the dollar’s value very seriously lately.  They’re trying to stop its slide against other currencies in order to limit the commodity inflation that is threatening the U.S. and global economies.

Today, Bernanke indicated that the economy is looking better all of a sudden.

“The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,” said the Fed chairman in a speech at a Boston Fed conference.

As a result, the dollar had another big day.  In fact, it had its biggest two-day rally against the euro since 2005.  Treasury yields have been surging higher as well.  The 2-yr Treasury’s yield spiked 0.365% yesterday, it’s biggest one-day bounce in 12 years, and it climbed another 0.21% today.

Other central banks are taking inflation seriously, too.  In fact, there appears to be a concerted effort underway to stop cutting rates and possibly begin raising them.

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Rising Oil Prices Series: Part I

Posted by Patrick O'Connor on 6/4/08 1:53 pm

This post contains top-ten energy stock holdings from Navellier & Associates’ all-cap portfolios.

This article is the first installment of a six-part series about rising oil prices. In this column, we’ll explain why rising oil prices are of so much interest. In Part II, we’ll explain how the oil market works. In Parts III and IV, we’ll address the two main reasons for rising oil prices: increasing demand and limited supply. In Part V, we’ll delve into some peripheral issues: the weak U.S. dollar and the role of speculation. Finally, in Part VI, we’ll end with an outlook for the oil market.

Looking behind rising oil prices

Robust demand for oil has pushed prices from below $50 per barrel of crude at the start of 2007 to approximately $120 a barrel in 2008—above the inflation-adjusted $101.70 peak hit in April 1980, a year after the Iranian revolution.

To some, the price of oil comes as no surprise. In 2000, Sadad I. Al Husseini—head of exploration and production for Saudi Aramco, the Saudi Arabian state-owned oil company—tallied up some numbers he had been gathering since the mid-1990s and determined that oil output would level off around 2004, plateau for a maximum of 15 years, then begin a gradual but irreversible decline.

That’s hardly the kind of forecast we’ve been hearing from oil companies, especially Saudi Aramco, which sits atop some of the world’s largest proven oil reserves (including the Ghawar field), which altogether hold around 260 billion barrels of oil, around a fifth of the world’s known supply, according to National Geographic. And true to form, Saudi Aramco and Saudi Arabia’s oil minister downplayed the data.

Now, as in the past, when oil pessimists contended that a peak in oil supply was imminent, many naysayers, including oil companies, point out that much of the world’s conventional oil supplies are untapped; unconventional oil supplies, such as tar-sand pits, are yet to be fully explored; and constantly improving technologies are allowing us to dig deeper and extract more oil than we ever expected we could. These naysayers argue that today’s rising prices cannot be the result of dwindling supply, but instead are the result of sharply rising demand (especially from Asia). To illustrate their point, they recall past doomsayers who have predicted an oil shortage that never occurred.

While all of that may be true, today’s oil situation is a far cry from what we have seen in the past. Ordinarily, for example, higher prices encourage oil companies to produce more by investing in new technology and pursuing harder-to-reach deposits. This happened during the Iran-Iraq war in the 1980s, leading to a glut of oil. In the past few years, however, global output of conventional oil has hovered around 85 million barrels per day despite skyrocketing prices. Something is clearly different.

Some industry experts argue that oil companies are intentionally withholding supplies to keep prices artificially elevated. The Organization of Petroleum Exporting Countries (OPEC)—a group of 12 countries formed to maintain the price of oil at a level that is beneficial to its members—is the most widely cited culprit because it is often considered a cartel. Although OPEC’s ability to control the price of oil has diminished somewhat as oil reserves have been discovered in other countries, including Russia, OPEC nations still account for around two-thirds of the world’s oil reserves, and 35.6% of the world’s oil production as of March 2008. This undoubtedly gives the organization considerable control over the global oil market.

But other industry experts have suggested that there just isn’t enough oil, and in a few years, demand will outpace supply. Last fall, the International Energy Agency forecast that global demand would rise to 116 million barrels a day by 2030. But Cristophe de Margerie, head of French oil company Total, has said the world can produce at most 100 million barrels a day. And Royal Dutch Shell CEO Jeroen van der Veer has said demand will outpace supply as soon as 2015.

Asking how we got here results in a number of convoluted answers, perhaps none that are “right.” But, we know this: world demand is increasing as oil supplies dwindle - and why supplies are dwindling is an issue in and of itself.

Certainly, there are physical limitations: no one would argue that the world’s oil supply will last forever. Indeed, the volume of oil discovered has fallen each year since the 1960s despite technological advances such as seismic imaging that allows an oil company to see oil deep below the Earth’s surface.

But there are political issues as well. War-torn countries such as Iraq, for example, cannot access their full production potential due to security problems. Other countries, including Russia and Venezuela, cannot access their full potential because of restrictive laws prohibiting foreign involvement. Edward Morse, an oil expert who was formerly with the U.S. Department of State and now analyzes the industry for Lehman Brothers, says political obstacles may be larger than production issues. Many oil company CEOs, including van der Veer, have echoed that thought.

There is also the perhaps peripheral issue of speculation and the weak U.S. dollar. Earlier this year, Michael Masters, a portfolio manager for Masters Capital Management LLC, told a U.S. Senate committee on homeland security and governmental affairs that the real culprits behind rising oil prices are institutional investors such as hedge funds and sovereign wealth funds. The credit crunch has brought some markets, such as the U.S. asset-backed commercial paper market, to a virtual standstill. At the same time, the lowering of interest rates has created a supply of money for institutional investors. They, say Masters and others, are pouring billions of dollars into commodities such as precious metals and oil, which are a hedge against the declining U.S. dollar. The more the dollar slumps, the more attractive U.S. dollar-denominated oil is to foreign investors. This, in turn, is distorting markets and driving prices to unprecedented levels. Indeed, Masters says institutional investment in commodities indices has risen from $13 billion at the end of 2003 to $260 billion at the end of March 2008.

In this series, we’ll review these issues. But first, let’s take a look at the world oil market—how it has evolved and where it is today.  Go to Part II.

Navellier energy stocks that are top-10 holdings

Vantage Portfolio
Petroleo Brasileiro (PBR); 1-yr Chart; Profile
Sasol Ltd. (SSL); 1-yr Chart; Profile

Power Dividend Portfolio
Noble Energy Inc. (NBL); 1-yr Chart; Profile
Devon Energy Corp. (DVN); 1-yr Chart; Profile
XTO Energy Inc. (XTO); 1-yr Chart; Profile

All Cap Core Portfolio
Occidental Petroleum Corp. (OXY); 1-yr Chart; Profile

We want to hear your thoughts!  Comment to this post by clicking the ‘comments’ link below.

Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. For a list of recommendations made by Navellier & Associates, Inc., for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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Rising Oil Prices Series: Part II

Posted by Patrick O'Connor on 6/4/08 1:39 pm

This post contains top-ten energy stock holdings from Navellier & Associates’ all-cap portfolios.

This article is the second installment (Read Part I) of a multi-part series about rising oil prices. In this column, we’ll review how the global oil market works—which is essential for understanding the economic analysis in the installments to follow.

A primer on the world oil market

In the mid-1980s, the price for a barrel of crude oil, adjusted for inflation to 2007 dollars, was under $25—and there it stayed until September 2003, when it began a gradual ascent that would take it to a peak of $135.09 in May 2008. That far exceeds the inflation-adjusted $101.70 peak oil hit in April 1980, a year after the Iranian revolution—so what gives? What’s driving up prices, and will they ever decline? We’ll get to that, but first, it’s important to understand the factors that influence the global oil market, including the role of the producers and refiners who impact not just oil prices, but the prices consumers pay for gasoline, heating fuel, and other oil-based products.

What is “oil”?

There are many varieties of oil, which is also known as crude oil or petroleum, but all are naturally occurring, flammable liquids found in the Earth’s rock formations. Because there are so many varieties, buyers and sellers refer to a limited number of “benchmark” oils. In North America, for example, the most widely used benchmark is West Texas Intermediate (WTI) oil, which is a light, low-sulphur crude. Varieties other than the benchmark are typically priced at a discount or premium to the benchmark, depending on how their quality compares to that of the benchmark.

Who produces oil?

A number of countries worldwide have crude oil deposits, and many are active producers. There is a great deal of concentration in the global oil industry; however, just 10 companies control 68 percent of the world’s proven crude oil reserves (and nine of these 10 companies are state-owned), according to Natural Resources Canada.

Since 1960, the global oil market has been significantly influenced by the Organization of the Petroleum Exporting Countries (OPEC), a consortium of 12 countries—Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela (plus Indonesia, which will quit after 2008)—formed to maintain the price of crude oil at a level that is beneficial to its members. Together, OPEC nations hold around two-thirds of the world’s crude oil reserves and produce 35.6% of the world’s supply as of March 2008, according to the Energy Information Administration (EIA), part of the U.S. Department of Energy.

TOP 10 OIL RESERVE HOLDERS
1. Saudi Arabia
2. Canada
3. Iran
4. Iraq
5. Kuwait
6. United Arab Emirates
7. Venezuela
8. Russia
9. Libya
10. Nigeria
Source: Oil and Gas Journal, 2006

TOP 10 OIL PRODUCERS
1. Russia
2. Saudi Arabia
3. United States
4. Iran
5. China
6. Mexico
7. Norway
8. Canada
9. United Arab Emirates
10. Nigeria
Source: Oil and Gas Journal, 2006

Who prices crude oil?

Traditionally, the law of supply and demand has determined the price of crude oil. When supply exceeds demand, producers try to sell excess inventory, and prices decrease. But when demand exceeds supply, consumers compete with each other for limited resources, bidding up the price.

Moreover, crude oil prices tend to be the same worldwide because the market is global. If there’s a shortage of crude oil in one part of the world, prices will rise in that market, attracting producers until supply and demand are in balance. Similarly, if there’s a surplus of crude oil in one part of the world, prices will fall in that market, attracting buyers who will bid up prices until they reach “equilibrium.” As a result, the only variation in world crude oil prices tends to reflect the cost of transportation.

That said, the crude oil market isn’t totally free because of the involvement of OPEC, which many people consider a cartel. To a great extent, OPEC sets the price of world crude oil, because when it wants to raise the price, it simply reduces production. How can this happen when many other countries also produce crude oil? - Because OPEC reportedly tracks the production of these nations and then adjusts its own production to maintain its desired price. (We say “reportedly” because OPEC has often denied this.)

Another factor influencing the price of crude oil is speculation. Crude oil is a commodity, and like other commodities, such as soybeans, it is widely traded by investors who see an opportunity to make money. These traders—called speculators because they’re not involved in the actual production or use of crude oil, but instead buy and sell paper contracts—can often influence market prices significantly. The two key markets where crude oil contracts are traded are the New York Mercantile Exchange (NYMEX) and the International Petroleum Exchange (IPE) in London. These are “futures” markets, meaning contracts are bought and sold based on expected market conditions in the coming months or even years. When the media quotes a price for crude oil, it typically quotes the futures market price in the most recent month.

Ultimately, crude oil ends up with refiners who convert it into gasoline and home heating oil, and marketers who sell it to consumers. Although refiners and marketers don’t directly influence the price of crude oil—except by demanding more or less of it based on consumer demand—they can influence the price of crude-based products. In March 2001, for example, the U.S. Federal Trade Commission (FTC) concluded that a spike in Midwestern gasoline prices was caused by one firm not selling its excess supply because doing so would have pushed down prices and thereby reduced the profitability of its existing sales.

Who uses crude oil?

According to the EIA, as of 2006 the United States used the most crude oil (20,687,000 barrels per day), followed by China, Japan, Russia, Germany, India, Canada, Brazil, South Korea, and Saudia Arabia.

As you may have noticed, many of these countries are developed. Indeed, the countries that make up the Organization for Economic Cooperation and Development (OECD)—a group of 30 countries that accept the principles of a representative democracy and free market economy—use the bulk of the world’s crude oil. Together, the United States, Europe, and Japan consume about half of the world’s annual oil output, according to Natural Resources Canada.

However, consumption in other countries, especially China, is expanding as these markets grow rapidly. According to the EIA, total energy demand in non-OECD countries is expected to increase by 95 percent from 2004 to 2030, while total energy demand in OECD is expected to increase by just 24 percent.

The transportation sector accounts for about two-thirds of the crude oil used in the world, and for about half of it used in the United States, according to Natural Resources Canada.

That’s important, because in our next installment, we’ll talk about demand—which many industry analysts say is the key factor in today’s skyrocketing oil prices.

Navellier energy stocks that are top-10 holdings

Vantage Portfolio
Petroleo Brasileiro (PBR); 1-yr Chart; Profile
Sasol Ltd. (SSL); 1-yr Chart; Profile

Power Dividend Portfolio
Noble Energy Inc. (NBL); 1-yr Chart; Profile
Devon Energy Corp. (DVN); 1-yr Chart; Profile
XTO Energy Inc. (XTO); 1-yr Chart; Profile

All Cap Core Portfolio
Occidental Petroleum Corp. (OXY); 1-yr Chart; Profile

We want to hear your thoughts!  Comment to this post by clicking the ‘comments’ link below.

Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. For a list of recommendations made by Navellier & Associates, Inc., for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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Fed Chairman Bernanke Surprises World with Dollar Comments

Posted by Patrick O'Connor on 6/3/08 12:51 pm

U.S. Federal Reserve Chairman Ben Bernanke unexpectedly voiced concerns about the weakening U.S. dollar and its inflation ramifications today at the International Monetary Conference in Barcelona, Spain.  Read more.

“We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate,” said Chairman Bernanke. Read full speech.

Bernanke’s dollar comments were a bit unusual for a Fed chairman.  Normally such comments are reserved for Treasury officials.  However, the economy is reaching a point where something has to be done about the rampant commodity inflation in order to protect the economy’s long-term viability.  And the dollar is an excellent place to start.  After all, the greenback has been tanking for quite a while.

But should we expect a sustained rebound in the dollar now that the Fed chairman appears to be targeting such an occurrence?

The Dollar: Short-Term Rebound, But After That – No Promises

Dollar-bashers say that the U.S. dollar is in a major long-term bear market, and are advising investors to keep their exposure to the dollar at an absolute minimum. They’re also recommending that all long-term savings and investments should be denominated in select foreign currencies against which they believe the dollar is likely to fair the worst.

Critics also say that economic policy decisions by the U.S. Federal Reserve have been greasing the skids for the stock market’s demise, primarily by flooding the world with dollars and credit. M3 – the economic term for the U.S. money supply – is growing at a 12% annual clip. Relentlessly pumping the dollar into the money supply has triggered a devaluation of the greenback – and helped inflate food and energy costs as an aftereffect.

Other signs are equally ominous . . .

• Dollar devaluation in the 1930’s coincided with the biggest bear market in history.

• After the US went off the gold standard in the ‘70s, a 10-year bear market followed.

• The Crash of ’87 was preceded by a 35% devaluation of the dollar against major currencies.

That’s the bad news for the dollar.  But there is some good news.

The dollar has stabilized since hitting an all-time low in mid-March. It’s rebounded nicely, albeit moderately since then. Historically, the dollar rises during periods of domestic economic strife. We’re not saying we’re in a recession, but it’s evident from the relevant data that the dollar has rallied during four of the last five U.S. recessions.

Thus, a burgeoning parade of economic forecasters say the outlook for the buck is brightening. Dr. Steve Sjuggerud, writing in a recent issue of the Investment U. newsletter, predicts the U.S. dollar should rise by 20% or more in the upcoming months.

Sjuggerud, writing from an economic conference in Switzerland, where the dollar has “crashed” and Americans pay $500 for one night in a hotel and $60 for a lunch of filet and salad, sees three key indicators that tell of better days ahead for the beleaguered U.S. currency.

Interest rates. All things being equal, the country with the higher yields will see its currency rise versus the country with the lower yield (deposits in the U.S. pay nearly 3%, while Swiss ones pay less than 1%).

Purchasing power. When one developed country’s currency is significantly out of line with another developed country’s currency, it’s like a stretched rubber band - things return to “normal” over time. (A Big Mac in Switzerland, for example, is 82% more expensive than a Big Mac in the States, according to The Economist magazine).

The underlying trend. Trends in currencies tend to stay in motion for longer than people think. Recently, the trend in the European currencies has been down versus the dollar, but so far the fall has been minimal… and there’s plenty more room on the downside in the euro and Swiss franc.

Conversely, the euro, which has run rings around the dollar in the past few years, is showing signs of slowing down, says Sjuggerud. He reasons that interest rates are lower than the United States, at closer to 2%. He also points out that a Big Mac in Europe is 25% more expensive than the U.S., but there is no good reason for it. “The Big Mac will return back to “normal” pricing in euros,” he says. “And the way that will happen is the expensive euro will lose some of its value.”

Consequently, all the “ducks are in a row” for the U.S. dollar to continue its rebound.

Of course, that’s his opinion. What might be closer to reality is that while the dollar may continue to surge (somewhat) in the short-term, long-term indications are working against any monumental U.S. currency recovery. That’s more or less Warren Buffet’s opinion. He recently told Bloomberg.com that “The U.S. dollar will keep weakening” and that he feels ``no need to hedge’’ against currency risk when buying large companies outside the U.S.

Buffet thinks the dollar will surge moderately against the euro this summer and into the fall. That’s primarily due to the fact that the Federal Reserve’s rate cuts are likely finished, and any hint of a hike in the fed funds rate in the future will boost the dollar. As stated above, the slowing U.S. economy should also bolster the dollar.

Working against the dollar’s rebound is the rising specter of inflation, which could plant the seeds for another prolonged decline in the dollar in late 2008 and early 2009.
For a more definitive look at the dollar and where it might go, check out one view from overseas.

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Rising Food Prices Series: Part VII

Posted by Patrick O'Connor on 5/28/08 2:11 pm

This article is the seventh and final part of a multi-part series about rising global food prices. In this installment, we will discuss some of the investment opportunities presented by the global food crisis. For further information, read parts I, II, III, IV, V, and VI.

Opportunities in the global agribusiness sector

In free markets, according to the law of supply and demand, a shortage will eventually remedy itself. As demand for a rare good rises, so will its price. When the price exceeds equilibrium—that is, the place at which supply and demand are equal, so sellers are selling all the goods they have produced, and buyers are buying all the goods they have demanded—a surplus of the good will result, because buyers can no longer afford it. Producers will thus be motivated to lower the price.

However, as noted in Part VI of this series, the world’s food market is not totally free; it is rife with trade restrictions, such as import and export quotas and bans, as well as tariffs. And even if it were totally free, reaching equilibrium would take time.

As a result, it appears that sky-high food prices are here to stay for some time. But, the crisis is not insurmountable. New technology, such as genetic modification and improved fertilizers, could increase crop yields. The diversion of crops to biofuels could end once politicians realize that voters care more about eating than driving green cars. And governments and businesses alike are working to combat the effects of climate change.

Meanwhile, astute investors could seek to take advantage of the situation by investing in companies that fall under the “global agribusiness” umbrella—for example, food producers, such as farmers and livestock raisers; food refiners; and industrial infrastructure companies that are responsible for the distribution of food throughout the world. Below we offer a few examples of industries that could benefit from the global food crisis, explain why they have potential, and list a few stocks that are Navellier top-ten holdings.

Farming machinery manufacturers
This one is obvious: in order to meet increasing demand by producing more food, farmers will need more equipment.

All Cap Core Portfolio
Cummins Inc. (CMI); 1-yr Chart; Profile

Power Dividend Portfolio
Joy Global, Inc. (JOYG); 1-yr Chart; Profile
Sun Hydraulics Corp. (SNHY); 1-yr Chart; Profile

Fertilizer companies
The price of fertilizer, which is essential for maximizing a crop’s potential, has risen in response to increased demand for food and high natural gas prices, according to the Tennessee Farmers Cooperative. For example, one fertilizer, DAP, cost $398 a ton last year; this year, it costs $1,000 a ton, according to Arkansas-based Oakley Fertilizer. It is not surprising, then, that some fertilizer companies are doing well. Read More

Vantage Portfolio
Chemical & Mining Co. of Chile (SQM); 1-yr Chart; Profile
Terra Nitrogen Co., L.P. (TNH); 1-yr Chart; Profile

Dynamic MPT Portfolio:
Mosaic Co. (MOS); 1-yr Chart; Profile
Potash Corp. (POT); 1-yr Chart; Profile
CF Industries Holdings, Inc. (CF); 1-yr Chart; Profile
Terra Industries, Inc. (TRA); 1-yr Chart; Profile

Water treatment companies
Climate change, as we noted earlier in this series, is leading to water shortages in some parts of the world. Moroever, it has been estimated that most of the 3 billion people projected to be added to the world population by mid-century will be born in countries already experiencing water shortages. This could create opportunities in water treatment, such as desalination, and irrigation improvements.

Small-to-Mid Cap Growth Portfolio
Valmont Industries, Inc. (VMI); 1-yr Chart; Profile

Food producers
Food producers may seem an odd choice to benefit from rising global food prices since their input costs are rising. But they may be able to pass on these rising input costs to the consumer due to dominant market positions and growing sales.

Biotechnology companies
Genetic modification of crops—such as the development and production of hybrid seeds—could improve crop quality and yield, which we believe could become far more important as countries look to produce more food on the same amount of land.  However, biotechnology companies tend to not have earnings early on.  As such, they’re usually too risky for our strategies.

Shipping-related companies
As demand from growing populations such as those of China and India skyrockets, the United States’ opportunity to export increases. That could bode well for companies involved in shipping—port operators, cargo container manufacturers and shippers. The first two may be particularly promising. Increased demand combined with a weak U.S. dollar has led to an increased demand for U.S. exports. But American agricultural producers cannot find enough empty cargo containers to ship their goods overseas, according to the Agriculture Transportation Coalition, a Washington-based lobby that seeks to help food producers become more competitive internationally. Port operators are also intriguing, as they have high barriers to entry, which could decrease competition, thereby increasing the profability of companies within the industry.

Power Dividend Portfolio
CSX Corp. (CSX); 1-yr Chart; Profile

Fundamental ‘A’ Portfolio
TBSI Int’l Ltd. (TBSI); 1-yr Chart; Profile
DryShips, Inc. (DRYS); 1-yr Chart; Profile

Dynamic MPT Portfolio
Excel Maritime Carriers, Ltd. (EXM); 1-yr Chart; Profile

Risk mitigation technologies
At least one major world insurer has said that there is an increasing need to mitigate risks in global agriculture. Climate change advisory services and related companies could help do this. For example, one company offers a geospatial information service that monitors more than four million square kilometers via five observation satellites—an increasingly important service when weather volatility could create cash flow risks for insurers.

Finally, a word of caution. As you may have guessed, many companies that could potentially benefit from the global food crisis are global, and global investing presents risks not associated with domestic investments, such as lack of transparency, political and economic changes and currency fluctuations. This could result in greater price volatility, so be sure to consider your suitability for a foreign stock before investing.

Navellier’s International Growth Portfolio has positions in some of the aforementioned industries.

We want to hear your thoughts!  Comment to this post by clicking the ‘comments’ link below.

Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. For a list of recommendations made by Navellier & Associates, Inc., for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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Fertilizer Prices are Soaring

Posted by Louis Navellier on 5/27/08 11:12 am

This post contains two fertilizer stocks that are top-ten holdings.

If you thought food and energy prices were skyrocketing, take a look at what is happening in the fertilizer market.  Two of the most widely desired elements in fertilizers are phosphate and potash.  And prices for both are soaring off the charts.

Phosphate, a mineral found in fossilized marine life, is up roughly 175% since last year; and potash, a rock mined from the earth, is up a staggering 200%.

Fertilizer costs are now eating away at farmers’ profit margins more than fuels, seeds, livestock, machinery, and chemicals.  As such, farmers are begging lawmakers to step in and do something about it, but their plight will not be easily resolved.

The reason is there are obscure laws around the world that protect makers of phosphate and potash from antitrust laws.  In the U.S., the 1918 Webb-Pomerene Act is one such law that allows Mosaic Co. of Minnesota to set its prices by following price increases from competitors.

Here are two phosphate and potash companies that are top-ten holdings in one of our all-cap portfolios.

Dynamic MPT Portfolio:
Mosaic Co. (MOS); 1-yr Chart; Profile
Potash Corp. (POT); 1-yr Chart; Profile

As I mentioned, putting a lid on fertilizer price increases will not occur overnight.  In fact, prices will likely continue to climb for the foreseeable future.

Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. For a list of recommendations made by Navellier & Associates, Inc., for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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Oil Prices Will Likely Remain High This Summer

Posted by Louis Navellier on 5/21/08 10:09 am

This post contains energy stocks that are in our top-ten holdings.

We are now entering the peak season for worldwide oil demand.  As such, you will not likely see any significant relief, if any, at the gas pump until after Labor Day, when the summer driving season ends.  However, you might be able to limit some of the pain at the pump by investing in companies that are well positioned for this energy-inflation environment.  At the end of this post, I’ll share with you some of our top-ten holdings that are in this space.

If you are wondering why diesel prices are so high, it is because the U.S. is now making “clean diesel” that is in high demand in Europe and the rest of the world, so U.S. diesel is now being exported.  In turn, the U.S. continues to import gasoline from other countries to meet demand requirements. 

These gasoline imports must then be blended with ethanol before they are transported to the pump.  If Barack Obama is elected our next president, it is widely assumed that the ethanol mandates and federal subsidies will likely continue, since Southern Illinois is a major corn-growing region, and Obama will probably protect his home state’s subsidies.  If John McCain is elected, it is expected that the federal ethanol subsidies will be cut off and cheaper Brazilian ethanol will likely be increasingly utilized.

Goldman Sachs recently rattled markets with its dire prediction that $150 to $200 per barrel oil is now possible within the next 6 to 24 months.  Yikes!  However, Goldman Sachs admitted that predicting the “ultimate peak” in oil prices and the duration of the current updraft “remains a major uncertainty.” Since Goldman Sachs correctly predicted $100 per barrel oil more than two years ago, its newer warning carries credibility.  I suspect that Goldman Sachs is also long crude oil and is profiting from its meteoric rise. 

One of the big problems emerging is that Mexico, Norway, Russia, and Venezuela are now experiencing declining crude oil production.  As a result, the world has become increasingly dependent on the Organization of Petroleum Exporting Countries (OPEC) for any production increases.  Recently, President Bush visited Saudi Arabia for the second time this year (Vice President Cheney also visited Saudi Arabia in between President Bush’s trips) in an attempt to coax the oil-rich nation to produce more oil.  When President Bush met with King Abdullah back in mid-January, he asked Saudi Arabia to increase production, but received a chilly response. 

Officially, President Bush’s most recent visit was to celebrate 75 years of formal U.S.-Saudi Arabia relations, and to agree on several matters, such as cooperation on nuclear energy, the protection of Saudi Arabia’s vast oil infrastructure, and nonproliferation.  Complicating matters, the Senate Democrats introduced a resolution that would block $1.4 billion in arms sales to Saudi Arabia unless Riyadh agrees to increase its oil production by one million barrels per day.  The Democrats said they introduced the measure to coincide with President Bush’s trip in order to send a message to Saudi Arabia that it should pump more oil to reduce the cost of gas for Americans.

Interestingly, Saudi Arabia has been exceeding its OPEC quotas for the past six months.  Specifically, in April, OPEC said Saudi Arabia produced 9 million barrels a day, which was down slightly from March, but 100,000 barrels per day over its quota.  However, more importantly, Saudi Arabia’s output consistently topped its 8.9 million barrel-quota for the past six months, which is indicative that the country is trying to make sure there is sufficient global supply.  After increasing its oil production above the OPEC quota, Saudi Arabia still holds excess capacity of about 1.9 million barrels a day, which represent virtually all of OPEC’s surplus capacity.

After President Bush’s visit, Saudi Arabia pledged to increase its crude oil production by approximately 300,000 extra barrels per day.  Ali Naimi, Saudi Arabia’s oil minister, said after the meeting with President Bush that the kingdom’s crude oil output would hit 9.45 million barrels per day by June, just in time for peak demand during the summer.  It will be very interesting to see whether crude oil prices will stabilize with the increased Saudi Arabian production.

In the interim, the search for more crude oil around the globe is relentless.  But the normal link between high crude oil prices and increasing production has been disrupted since most of the new sources of crude oil are much more expensive to find or extract.  It can also take several years to bring new oil fields online.  Russia is expected to provide new incentives to coax Western oil companies to help it find new crude oil and natural gas deposits. 

The biggest news in the energy business is that Brazil recently announced a second major oil find off the east coast of Brazil.  The head of Brazil’s National Petroleum Agency, Haroldo Lima, said the oil find could be one of the world’s biggest discoveries in decades, containing as much as 33 billion barrels in oil equivalent, which would make it the third largest oil field in the world.  Additionally, in 2006 Brazil’s Petrobras discovered the Tupi oil field, which the company says has an estimated eight billion barrels.  That was the biggest strike anywhere in the world since 2000.

Even though these new oil discoveries could be very large, the oil would not hit the market anytime soon.  Petrobras’ discovery is in an area known as the “presalt area,” which lies at a water depth of more than 6,500 feet, an additional 9,800 feet of sand and rock, and another 6,500 feet of salt.  This makes crude oil production very challenging and expensive, similar to new deep-water finds in the Gulf of Mexico that have not yet been brought online.

After Petrobras’ discovery, the oil service industry went straight to West Africa, since the East Coast of Brazil and the West Coast of Africa were connected in the Pangaea era, when the earth had one giant super-continent.  This was before the Mid Ocean Ridge and the Atlantic Ocean were formed over 200 million years ago.  As a result, both Brazil and West Africa are now the hot spots for oil exploration. 

Below is a list of Navellier energy companies that are top-ten holdings in our all-cap portfolios.

Vantage Portfolio:
Sasol Ltd. (SSL); 1-yr Chart; Profile
Petroleo Brasileiro (PBR); 1-yr Chart; Profile
EnCana Corp. (ECA); 1-yr Chart; Profile
Cameron International Corp. (CAM); 1-yr Chart; Profile

All Cap Core Portfolio:
Occidental Petroleum Corp. (OXY); 1-yr Chart; Profile

Power Dividend Portfolio:
Noble Energy, Inc. (NBL); 1-yr Chart; Profile
Devon Energy Corp. (DVN); 1-yr Chart; Profile
XTO Energy, Inc. (XTO); 1-yr Chart; Profile

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Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested.  It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. For a list of recommendations made by Navellier & Associates, Inc., for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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T. Boone Pickens Thinks Oil will Hit $150 this Year

Posted by Patrick O'Connor on 5/20/08 1:45 pm

T. Boone Pickens says the high price of oil has nothing to do with speculators or a weak dollar driving prices higher and everything to do with supply and demand.  Simply put, he says the world can produce 85 million barrels per day, but the market needs 87 million.  Watch both CNBC video clips.

Oil prices topped $129 today, another new all-time high.

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Lawmakers Targeting Commodity Trading Rules

Posted by Patrick O'Connor on 5/20/08 11:27 am

What happens when commodity prices hit all-time highs during a presidential election year?  We get more political grandstanding, more regulation, and probably no price relief.

Today Senator Claire McCaskill (D-MO) told the Commodity Futures Trading Commission’s Chief Economist at a hearing in Washington that Americans “are about to pick up pitchforks” because of soaring food and energy costs.  Ms. McCaskill suggested that Congress needs to consider tighter commodities regulation.  Read More

More regulation is not going to solve the global supply and demand issues that are largely responsible for today’s commodity inflation.

How about offering more commodity shorting instruments to the public to counterbalance the predominantly available long-only choices, increasing incentives to citizens and companies that conserve energy, and coming up with some creative solutions that address the negative impacts ethanol mandates have put upon food prices?

More regulation is not a cure-all, Washington.

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